Market Participants Recognise 5N Plus Inc.'s (TSE:VNP) Earnings Pushing Shares 29% Higher

Despite an already strong run, 5N Plus Inc. (TSE:VNP) shares have been powering on, with a gain of 29% in the last thirty days. The last month tops off a massive increase of 101% in the last year.

After such a large jump in price, 5N Plus may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 33.5x, since almost half of all companies in Canada have P/E ratios under 16x and even P/E's lower than 9x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

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5N Plus certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for 5N Plus

Keen to find out how analysts think 5N Plus' future stacks up against the industry? In that case, our free report is a great place to start.

How Is 5N Plus' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as 5N Plus' is when the company's growth is on track to outshine the market decidedly.

Taking a look back first, we see that the company grew earnings per share by an impressive 32% last year. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next year should generate growth of 32% as estimated by the five analysts watching the company. With the market only predicted to deliver 17%, the company is positioned for a stronger earnings result.

With this information, we can see why 5N Plus is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Shares in 5N Plus have built up some good momentum lately, which has really inflated its P/E. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of 5N Plus' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 1 warning sign for 5N Plus you should know about.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.